One of the richest men in the world, George Soros, and his aptly named fund Soros Fund Management, is an important firm to keep an eye on. At Insider Monkey, it’s no secret that we track billionaires like Soros, Warren Buffett and David Einhorn, but most coverage is devoted to their favorite stock picks, or their new investments from quarterly 13F filings.
In Soros’s case, that means Apple Inc. (NASDAQ:AAPL) or Google Inc (NASDAQ:GOOG) from the tech universe (see his favorite tech trades), for example. Now, one underrated area that we can also track hedge fund sentiment is in the world of dividend-paying stocks; let’s take a look at a few that yield above 4% and are loved by Soros. Discover the secrets of piggyback investing here.
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Seadrill
In order of income attractiveness, first up is Seadrill Ltd (NYSE:SDRL)’s dividend yield of 8.26%. Soros Fund Management reported ownership of 361,212 shares, worth $13.4 million last quarter. Though it doesn’t get quite the press as larger deepwater players like Transocean LTD (NYSE:RIG) or Noble Corporation (NYSE:NE), and this space as a whole doesn’t get quite the respect as LNG peers in the energy sector, Seadrill Ltd (NYSE:SDRL) is an attractive investment from multiple standpoints.
Obviously, the dividend is one of the best in the oil and gas drilling industry as a whole, and unlike many equities with booming yields, Seadrill Ltd (NYSE:SDRL)’s stock price has been appreciating as of late; shares are up more than 12% year-to-date and 18.4% over the past year.
An intriguing aspect of Seadrill Ltd (NYSE:SDRL) is its ability to attain rig leases that are slightly longer than industry norms. According to the company itself, Seadrill Ltd (NYSE:SDRL) has an average contract length of 26 months, which is lengthier than the long-term averages of most peers, though Noble, for example, sports an average contract length of just over 39 months; generally, longer leases are something the industry is trending toward. This, in turn, leads to an increased certainty of future operations, which allows companies like Seadrill Ltd (NYSE:SDRL) to use debt to fund growth and stimulate shareholder value.
S&P, for example, believes that deepwater rig counts in the Gulf of Mexico will continue to increase, from 33 before the Macondo spill and 37 by the end of last year, “to the mid-40s by 2013 year end.” The ratings agency cites the Gulf’s “importance to the nation’s future energy security” as a key reason to be bullish on this space over the long-term, and there’s no harm in LNG investors also taking a look here when thinking about their energy portfolios as well.
In addition to its substantial dividend yield, Seadrill also sports a PEG ratio below 1.0, which indicates that the markets are undervaluing the company’s growth prospects. To be fair, sell-side analysts are being pretty generous in their projections—forecasting 24-25% annual EPS growth through 2017—but it’s worth noting that ENSCO PLC (NYSE:ESV), Magnum Hunter Resources Corp (NYSE:MHR), Northern Oil & Gas, Inc. (NYSEMKT:NOG), Rex Energy Corporation (NASDAQ:REXX), and Kodiak Oil & Gas Corp (USA) (NYSE:KOG) all sport even higher estimates. Due to the aforementioned factors, it’s foreseeable that Seadrill at least comes close to this target; it’s easy to see why Soros is long.
Macquarie
Another new position with a high dividend yield in Soros’s equity portfolio is Macquarie Infrastructure Company LLC (NYSE:MIC), in which the hedge fund owns 28,989 shares, worth $1.6 million. With a dividend yield of 4.8%, this diversified infrastructure company with a slant toward energy is one of the top 50 income stocks in the 850-company services sector, and like Seadrill, the growth picture is promising.
Insider trading activity at Macquarie Infrastructure Company LLC (NYSE:MIC) has been positive in the past month, and Wall Street’s average price target predicts another 21-22% upside in the company’s share price from current levels near the $54 mark.
Macquarie Infrastructure Company LLC (NYSE:MIC)’s involvement in public-private manufacturing projects more commonly known as PPPs gives it an added advantage that most investors don’t consider. Some of its more prominent PPPs have been the Chicago Skyway project, the first PPP of a brownfield (aka preexisting) asset; the North Tarrant Expressway, the first to issue Private Activity Bonds for such a project; and the Denver Fastracks commuter rail system, the first PPP of transit nature.
In fact, most readers probably wouldn’t place “innovation” and “infrastructure” in the same sentence, but this is what Macquarie Infrastructure Company LLC (NYSE:MIC) does best. This advantage, in addition to low-double-digit EBITDA growth over the past year and lessening debt costs contribute to the picture that is analysts’ forecast for 25-26% annual earnings growth for the next half-decade. The Street’s outlook places Macquarie Infrastructure Company LLC (NYSE:MIC) in the top tenth percentile of the entire services sector in terms of this metric.
A trio of REITs
Soros also showed confidence in the REIT marketplace last quarter, disclosing positions in Biomed Realty Trust Inc (NYSE:BMR), Capstead Mortgage Corporation (NYSE:CMO) and Anworth Mortgage Asset Corporation (NYSE:ANH). This trio sports an average dividend yield of 8.3%, with Anworth Mortgage Asset Corporation (NYSE:ANH) yielding in excess of 10%, seventh highest in the diversified REIT industry.
While Anworth is focused on agency mortgage-backed securities, Capstead Mortgage Corporation (NYSE:CMO) gives Soros greater exposure to adjustable-rate mortgages, particularly from Fannie Mae and Freddie Mac.
Operating as a lab space manager for various biotech and pharmaceutical firms, Biomed Realty Trust Inc (NYSE:BMR) is a bit of a different play here, but Soros is likely invested for its upcoming merger with Wexford Science & Technology, a privately held real estate investment and development company. On the deal that was announced a few days before the close of the first quarter, BioMed’s Chairman and CEO Alan Gold said that it “accelerates our growth as the leading provider of real estate to the life science industry.”
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